TMI Blog2015 (7) TMI 775X X X X Extracts X X X X X X X X Extracts X X X X ..... funds has already been disallowed and the amount received by the assessee is net amount. Therefore, for the purpose of disallowance u/s 14A expenditure already disallowed from the dividend income prior to the allocation to the assessee is required to be taken into account. In the facts and circumstances of the case, we direct the AO to re-compute the disallowance by reducing the amount of expenditure already disallowed from the dividend income from the amount worked out by the AO at ₹ 6,04,000/-. - Decided partly in favour of assessee. - ITA No.1334(B)/2013,ITA No.321(B)/2015 - - - Dated:- 17-7-2015 - Shri Vijay Pal Rao and Shri Jason P Boaz, JJ. For the Petitioner : Shri H.N.Khincha, CA For the Respondent : Dr. K. Shankar Prasad, JCIT ORDER PER SHRI VIJAY PAL RAO, JM: These appeals by the assessee are directed against two separate order passed u/s 263 of the IT Act, dated 12-07-2014 and 28-10-2014 for the assessment year 2009-10 and 2010-11 respectively 2. The assessee has raised common issues in both these appeals regarding disallowance made u/s 14A of the Act. The grounds raised for the AY ; 2009-10 are as follows; 1. The ld. Asst. CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was sufficient for making the investments and no borrowed funds was used for investments in question. The assessee furnished details of the own funds as well as the details of the investments and contended that the assessee has utilized his own funds. Therefore, the disallowance made on account of interest expenditure is not justified. Further, the assessee submitted that since no expenditure was incurred by the assessee for earning the dividend income being an allocation of dividend from venture capital funds which is net of the expenditure and therefore, no further disallowance was called for u/s 14A of the Act. The CIT(A) did not accept the contention of the assessee and concur with the AO in disallowing the interest expenditure as well as the general administrative expenditure u/s 14A of the Act. 4. Before us learned AR of the assessee has submitted that the AO made the disallowance irrespective of the fact that the assessee has not utilized any borrowed funds for investments in question. The AO was of the view that sec.14A has to be invoked for indirect expenses whether the assessee has not utilized any borrowed funds. He has referred the schedule-5 to the balance sheet an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nture capital fund management company made investments in other venture capital companies and other trade investments. The funds are managed by the specific venture capital companies and all expenses were incurred by these venture capital funds. He has pointed out that the assessee has received the exempt income in the nature of dividend by way of allocation and allocation of income is after disallowance u/s 14A of the Act. Thus, no disallowance is called for in the hand of the assessee company when the exempt income received by the assessee after disallowance already made u/s 14A of the Act. Further the AO has not pointed out any expenditure with respect to exempt income. In support of its contention the learned AR of the assessee relied upon the following decisions; a) CIT Vs Abhishek Industries Ltd.(2015) 56 Taxmann.com 391 (P H) b) ACIT Vs Magarpatta Township Development Construction Co.Ltd (2014) 46 Taxmann.com 284 (Pune-Trib.) 7. On the other hand, learned DR has relied upon the order of the CIT(A) and submitted that the CIT(A) has specifically pointed out that the assessee was asked to produce certificate from the bank to show that the loans availed from the bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dend to the assessee by the various venture capital funds has been made after disallowance made u/s 14A of the Act. Further, the assessee has claimed that the investments were made through the various venture capital funds and the assessee has not utilized any borrowed funds. Therefore, disallowance u/s 14A of the Act on account of interest income is not called for. We find that the AO has not examined the fact of availability of assessee s own funds for making the investments. The AO rather strict to the principal that even if the assessee has claimed that no expenditure incurred for earning dividend income the provisions of sec.14A are applicable and the disallowance was accordingly, worked out as per Rule-8D of the Act. It is pertinent to note that the disallowance u/s 14A is not automatic but there should be a live nexus at least a proximate nexus between the expenditure and the exempt income. The CIT(A) though, has reproduced the details of the assessee s own funds in para-9 of impugned order however, the CIT(A) has not discussed the details of the investment and the year of the investment soas to establish that the assessee has used the borrowed funds in the investments and n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Reserves and Surplus Rs. in million 31-03-2007 10 312.59 322.59 31-03-2008 10 368.42 378.42 31-03-2009 10 737.47 378.42 9. Thus, it is clear that the assessee was having its own interest free funds which is morethan the investments in question. Further, there was no disallowance on account of interest expenditure u/s 14A for the earlier assessment years. We note that the AO has took the opening balance of investments at 9.30 Crores and closing at 14.85 Crores therefore, keeping in view of the availability of assessee s own fund we find that the assessee has established the claim that the no borrowed funds was used for the purpose of investments. Therefore, disallowance by the AO on interest expenditure u/s 14A is not justified. Accordingly, we delete the disallowance made by the AO u/s 14A on account of interest expenditure. 10. As regards the disallowance of the general administrative expenses under rule 8D(2)(iii) the AO has co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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